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American International Group Inc. (NYSE: AIG) today (Monday) agreed to sell its American Life Insurance Co. unit, better known as Alico, to MetLife Inc. (NYSE: MET) for $15.5 billion, taking yet another step towards paying off its U.S. government debt.

With a deal inked a week ago to sell its Asian life-insurer unit, American International Assurance Ltd. (AIA), to Prudential PLC (NYSE ADR: PUK) for $35.5 billion, the Alico sale means AIG is now expected to return $32 billion in cash to the Federal Reserve Bank of New York in the coming months – provided both deals close as scheduled by yearend.

Another $19 billion is likely to be returned over the next few years when AIG's large stakes in Prudential and MetLife are sold.

"AIG has pulled off two massive asset sales, marking major milestones on its road to recovery," David Havens, managing director in credit trading at Nomura Securities International Inc. in New York told Bloomberg News. "A year ago, AIG getting more than $50 billion for AIA and Alico, mostly in cash, seemed unthinkable."
The complicated deal has AIG – which is nearly 80% owned by the U.S. government -taking a 20% stake in MetLife, the nation's No. 1 seller of life insurance. AIG would receive 78.2 million common shares and 6.6 million shares of convertible preferred stock, making it the second-largest shareholder of MetLife, which was relatively unaffected by the financial crisis.

The companies realized any deals they might make with AIG would require holding a stake in the troubled company, with the federal government becoming a sizeable de facto shareholder, TheJournal reported, citing sources familiar with the details. Prudential's deal with AIG has the U.K. insurer taking approximately 11% of AIG shares.

In a move to help ease AIG's debt burden last year, the New York Fed forgave a $25 billion portion of its loan to AIG and acquired preferred equity in Alico and AIA, its two crown-jewel assets.

The New York Fed now stands to receive the first $9 billion in cash from the sale of Alico and $16 billion from the AIA sale. At the end of February, AIG still owed the Fed roughly $25 billion on a five-year line of credit, with more than $40 billion still owed to the Treasury.

AIG will be able to partially reduce the $25 billion credit line when it receives additional cash from the AIA sale. The rest will be paid down as AIG sells off its stakes in Prudential and MetLife, which it cannot begin to do for at least nine months, according to terms of the deals.

After shedding AIA and Alico, Chief Executive Officer Robert Benmosche has said AIG intends to return to its core businesses in global property- and casualty-insurance as well as its domestic life-insurance business.

AIG also will sell off other assets, including parts of International Lease Finance Corp., its aircraft-leasing firm. The company just last week announced the sale of the remainder of its ownership in reinsurer Transatlantic Holdings. But those sales will bring in much less than the AIA and Alico deals.

The deal for Alico will bolster MetLife's presence outside the United States, giving it another foothold in Asia, where AIG is especially strong. Alico is headquartered in Delaware, but was founded in China in 1921 and operates in more than 50 countries. The company was one of AIG's first businesses, and has more than 19 million customers.

Alico reported about $2.2 billion in pretax operating income last year, a 16% increase from $1.9 billion in 2008. The business has about 12,500 employees and $89 billion in assets under management as of the end of 2008, according to a statement from MetLife.

"This acquisition establishes MetLife as perhaps the premier life insurance franchise," Chief Executive Officer Robert Henrikson, 62, said in the statement obtained by Bloomberg. "Clearly given Alico's established positions, it's a franchise that one could not build without a significant investment of time and resources over many years."

MetLife made its initial move to expand globally with its purchase of Travelers Life & Annuity from Citigroup Inc. (NYSE: C) in 2005 for about $11.7 billion. That deal gave the insurer exposure to markets in Japan, Australia and the United Kingdom. The company posted about $5.5 billion of foreign sales in 2009, accounting for about 11% of its operating revenue.

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